Shifting of Pollution Loads to Informal Units in India: A Possible Escape Route for Compliance with WTO Standards

Date01 February 2013
AuthorSarmila Banerjee,Sudeshna Chattopadhyay
Published date01 February 2013
Subject MatterArticles
Shifting of Pollution Loads
to Informal Units in India:
A Possible Escape Route
for Compliance with
WTO Standards
Sudeshna Chattopadhyay
Sarmila Banerjee
This article tries to examine the environmental and social costs imposed on the
Indian economy as a result of globalization. It is shown that in the world market,
India has strong revealed comparative advantage (RCA) in a number of dirty prod-
ucts. Constant Market Share (CMS) analysis for these products suggests enhanced
price competitiveness in the post-liberalization period. However, an estimation
of total pollution content of India’s trade vector indicates that though the pollu-
tion content increased during early liberalization and globalization period, it has
come down in the post-World Trade Organization (WTO) period. Whether
this is an outcome of switching to cleaner technology to comply with the stricter
environmental and social standards or merely a consequence of shifting pollution
load from the formal to the informal sector is our research question.
JEL: F6, F18, O17
Environmental and social costs, globalization, revealed comparative advantage,
constant market share analysis, price competitiveness, pollution content of trade,
formal and informal sector linkage
The effect of trade liberalization on the environment of developing countries is
a widely debated topic. Trade enables a country to consume a good without
Sudeshna Chattopadhyay (corresponding author), Assistant Professor, Bidhannagar
College, Kolkata, West Bengal, India. E-mail:
Sarmila Banerjee, Rajiv Gandhi Chair Professor, University of Calcutta, India.
Foreign Trade Review
48(1) 23–44
©2013 Indian Institute of
Foreign Trade
SAGE Publications
Los Angeles, London,
New Delhi, Singapore,
Washington DC
DOI: 10.1177/001573251204800102
Foreign Trade Review, 48, 1 (2013): 23–44
24 Sudeshna Chattopadhyay and Sarmila Banerjee
incurring the pollution externality created during its production. So, the import-
ing country effectively displaces the implicit pollution load to the exporting
country. With liberalization, at least initially, the differences in environmental
standards between the developed and developing countries might induce envi-
ronmental load displacement towards the latter (Antweiler et al., 2001; Cole,
2004; Low and Yeats, 1992; Lucas et al., 1992; Mani and Wheeler, 1999;
Muradian et al., 2002, Robison 1988; Tobey, 1990). However, the New World
Order under the aegis of the World Trade Organization (WTO) recommends
implementation of uniform environmental standards in all the member countries
and so, since 1995, the process of globalization has also been expected to
encourage adoption of cleaner production techniques and better abatement prac-
tices all over the world.
The process of liberalization in India was initiated in 1985 and India’s partici-
pation in world trade has increased steadily since then. The share of trade as a
percentage of gross domestic product (GDP) has gone up from 9 per cent in 1978–
1979 to 36 per cent in 2008–2009 (Figure 1). Since more than two decades have
elapsed since the process of liberalization began, it is pertinent to enquire at this
juncture the influence of increased openness on our environment. To isolate the
scale and composition effects, the focus of the search would be on the share of
dirty goods in total export, and to assess the technique effect, estimation of total
pollution content of export would be done and finally, keeping the special organi-
zational feature of industry in mind, the possibility of pollution load shifting from
the formal to the informal sector as an escape route to regulatory compliance
would be explored.
For a country like India where the industrial sector is dualistic in nature, it is
doubtful how far formal regulation would be successful in encouraging adoption
of cleaner production techniques in the informal sector. The informal sector is, by
Figure 1. India’s Trade Openness: 1978–1979 to 2008–2009
Source: Calculated from data retrieved form
(Trade value/GDP)
(Trade value/GDP)

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